Reflections on Tech in APAC

On a recent trip to Singapore I was able to spend time with a few local and Asia Pacific (APAC) startup founders and the APAC heads of business in technology companies. These conversations were really insightful particularly with regard to the macro trends in the region. This post is my reflections from these conversations on doing business in Asia, the of growth and adoption of tech across the region and some opportunities Australia might consider to make a greater impact in APAC.

Doing business in Asia

Regulation for new, tech-driven economies

Regulation plays such an important role in opening up markets to new technologies. In APAC there are some really interesting examples of progressive regulation which have allowed existing institutions and 'startups' to test new technologies. In 2016, the monetary authority of Singapore (MAS) launched a 'sandbox' which allows financial institutions to rapidly trial and test innovative financial services. Behind sandbox environments now in Hong Kong, Malaysia and Australia has been the recognition by regulators that there needs to be a balance of experimentation with new technologies and security.

At the same time some regulators are supporting innovation there are also examples where greater scrutiny of new entrants is being applied. Deloitte's APAC Centre for Regulatory Strategy identifies the major shifts in regulation that are occurring in APAC markets. Areas of changing regulation include e-money, data retention, privacy, regulation of new technologies and international entrants (i.e. ride-hailing) and cyber security. There are numerous examples where understanding the current regulations in local markets as well as the regulatory risks specific to the market can mean the difference between successful market entry, drawn out application processes and/or failure.

The presence and influence of large conglomerates

Large family-owned conglomerates continue to play a dominant role in many of the APAC markets. Presence and influence varies by market, however it is impossible to ignore these family businesses in Asia. Take for example the Widjaja family in Indonesia who own the Sinar Mas conglomerate. As of November last year, Sinar Mas had a total market capitalisation of ~USD$10bn in pulp, paper, palm oil, property, finance and urban development. If market capitalisation is an indicator of presence, influence may be indicated by something like BSD City which is a Sinar Mas owned development in Jakarta’s neighbor district Tangerang. BSD city is half the size of Paris and complete with hospital, housing, malls, telecoms, entertainment and transport. Whilst many of jurisdictions in APAC are looking to governments to help fund and experiment with smart city concepts (e.g. Cyberjaya in Malaysia), BSD City is an example of a smart city developed by a conglomerate a clear example of how conglomerates a shaping the future of living, work and technology adoption in Asia.

Growth and adoption of technology

Investment in new technologies

In the last 3 years, APAC has consistently accounted for ~30% of total VC back companies globally (US ~60% and Europe 10%) with consumer tech/software particularly in China soaking up a lot of investment. In the 3rd quarter of 2017, 6 of the top 10 deals by size came from APAC with companies like TouTiao (a personalised information system) or SenseTime (facial recognition tech) receiving hundreds of millions in funding. This data shows the strength in innovation in new technologies in the region.

Based on my discussions in Singapore, the trends to watch appear to be the growth in investment in AI as new opportunities to monetise are identified, electric/autonomous vehicles in China due to Chinese government directives to replace gasoline cars by 2030, transformation of payment methods in SE Asia nations (particularly Philippines and Indonesia) and transport tech including bikes and delivery services.

China's Tech giants going abroad

Alibaba, Tencent, and JD.com are just some of the Chinese tech giants that are eyeing off global expansion. Specifically, they are looking to India and Southeast Asia to acquire talent and technologies to expand their reach. Investment in the Southeast Asia tech market has climbed to ~$5bn in the last two quarters of 2017 from ~$3bn in the all of 2016. These Chinese tech companies have been connected to a number of massive deals, including Alibaba’s $2 billion commitment to Lazada Group (an e-commerce start up) or its $1.1 billion investment in Tokopedia. Tencent has recently signing a deal with Sea — a gaming and ecommerce firm. Meanwhile, JD.com is working with Thailand’s Central Group on a $500 million joint venture. The activities by these tech giants reflects the growth prospects for tech in the APAC region - this at a time when other regions are experiencing a relative cooling off.

What might Australia do?

Greater connectivity to SEA, China and India

The leaders I spoke to in Singapore all used the following phrase to describe Australia - Minnow Power. Australia's economic ties to China, political ties to the US, natural resources, stable government, established banking system and education all seem to rate highly. However, there is a commonly held view that distance, cultural differences, small population and political orthodoxies mean that the growth of new tech economies in APAC may occur without involvement of Australia or Australians. Improving connectivity to Asian nations was an overall theme with some ideas:

• Joint sponsorship of economic initiatives in the region by either government or private investors (e.g. APAC 'future of work' labs)
• Australian government directives/subsidies for companies developing new technologies for Asian markets
• More 'landing pads' for Australian nationals in select SEA countries and hosting of APAC techology events

Shenzen in Australia

What is the Shenzen of Australia? This question was posed to me in Singapore. Shenzen (aka Silicon Delta) is China's tech capital and a major part of the technology supply chain for the world. Everything from semi-conductors, robotics, smartphones are designed and manufactured in Shezen. Australia's reputation in Asia for its fresh produce could be a clue. A Shenzen style hub for fresh produce/food including contract kitchens, food innovation, food tech, packaging etc. might be an opportunity to connect create the food 'supply chain' for the region.

The growth of tech in the APAC region continues to go from strength to strength. The leaders I met in Singapore were very bullish about the region's prospects and its growing influence on the global economy particularly in the form of Chinese tech giants, India's digital development and major family conglomerates. Australia can play a greater role but this will only be possible through increased connectivity and investment in Asian jurisdictions.

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